CHAPTER 9 Swaps and Interest Rate Derivatives EASY (definitional) 9.1 A(n) __________ swap is an agreement between two parties to exchange interest payments for a specific maturity in an agreed upon notional amount. a) interest rate b) currency c) bond d) currency bond Ans: a Section: Interest rate swaps Level: Easy 9.2 In a _______ swap‚ two parties exchange floating interest payments based on different reference rates. a) basis b) coupon c) notional d) forward rate Ans: a
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INTERNATIONAL FINANCIAL MANAGEMENT Undertaken at “TECNIA INSTITUTE OF ADVANCED STUDIES” Submitted in the partial fulfillment for the award of the degree of MASTER OF BUSINESS ADMINISTRATION Under the Supervision Submitted by and Guidance of RAMAN KUMAR Ms. Sakshi Goel 05117003910 (Lecturer IFM) MBA- 3rd Sem
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contributed to net income. Currency swaps allow companies to exploit the global capital markets more efficiently. They are an integral arbitrage link between the interest rates of different developed countries. Companies have to come up with the funds to deliver the notional at the end of the contract. They are obliged to exchange one currency’s notional against the other currencies notional at a fixed rate. The more actual market rates have deviated from this contracted rate‚ the greater the potential loss
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cash flows from some other security or index. Question A–2 The FASB has taken the position that the income effects of the hedge instrument and the income effects of the item being hedged should be recognized at the same time. Question A–3 If interest rates change‚ the change in the debt’s fair value will be less than the change in the swap’s fair value. The gain or loss on the $500‚000 notional difference will not be offset by a corresponding loss or gain on debt. Any increase or decrease in income
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in one currency to exchange money denominated in other currency at a pre-agreed exchange rate(Eun‚C.S‚p.114). It is different from the forward contract in that Toyota has right but not the obligation to exchange the currency and options have premiums and hence costlier than forward contracts. Foreign currency borrowing Foreign currency swaps 2.3 Effectiveness of Foreign Currency Exchange Rate Risk Management. *2.4 Alternative strategies to manage Foreign Exchange risk of *Toyota
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January 2008 DRAFT Guidance Note AGN 112.2 Standardised Approach to Credit Risk: Risk-weighted Off-balance Sheet Credit Exposures 1. This Guidance Note and its Attachments set out the procedures and requirements for calculating the risk-weighted amount of an authorised deposittaking institution’s (ADI’s) off-balance sheet credit exposures under the standardised approach for capital adequacy purposes. Scope 2. The risk-weighting process used for measuring an ADI’s off-balance sheet credit exposures
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desk that is devoted to buying and selling interest bearing securities A Foreign exchange or "FX" desk that buys and sells currencies A Capital Markets or Equities desk that deals in shares listed on the stock market. In addition the Treasury function may also have a Proprietary Trading desk that conducts trading activities for the bank’s own account and capital‚ an Asset and Liability Management (ALM) desk that manages the risk of interest rate mismatch and liquidity; and a Transfer pricing
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hedge item is less than 12 month. Air Asia manages its cash flow interest rate by entering into a number of immediate interest rate swaps and cross currency swaps contracts which converts its existing long-term floating rate debt into fixed rate debts. The rationale is that the hedging strategy ensures company is paying a fix interest rate expense on its liability and performance of Air Asia is not affected by fluctuation in interest rate. In addition company can plan better for all its activities.
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is proposed a change of plans regarding their main business activities. We have made different scenarios by using the different alternatives and calculated the resulting interest rates which SELF would have to pay‚ when the LIBOR is high or low. In Appendix B we have included the input information and resulting interest rates‚ which we have calculated in Excel. Following this‚ we have included graphs of several scenarios‚ which are explained in chapter 6: Analysis and chapter 7: Discussion. In Appendix
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management FP Answer: a EASY 1. One objective of risk management can be to reduce the volatility of a firm’s cash flows. a. True b. False (24.4) Swaps FP Answer: b EASY 2. Interest rate swaps allow a firm to exchange fixed for floating-rate payments‚ but a swap cannot reduce actual net interest expenses. a. True b. False (24.5) Speculative versus pure risk FP Answer: a EASY 3. Speculative risks are symmetrical in the sense that they offer the chance
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